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Property investment is an investment strategy anyone can get involved in, given the range of price points and properties currently on the housing market. Investment opportunities are surprisingly easy to come by, so the question of what makes a property investor is one you may be asking.
There are many ways of getting into property investment, and being a property investor involves much more than just owning properties you do not live in. You must consider many things when becoming a property investor, and although it can be an excellent way of generating passive income, some work is involved.
Now is said to be a really good time to consider becoming a property investor. The housing market has seen sky-high property prices and rents for the past few months, with further growth expected.
Savills is predicting a 5-year growth of 6.2% for the UK housing market, with some areas such as the North West expecting a more significant growth of 11.7%. Combine this growth with the resilience of the housing market, and you can see why property investment is becoming such a popular investment option.
This guide will answer questions such as ‘what is a property investor in the UK’, as well as giving you an overview of what property investors do, how they earn money and how you can become one.
By submitting your details you agree to allow RWinvest to store and process the information submitted and receive product information and other communication, as stated in the privacy policy.
By submitting your details you agree to allow RWinvest to store and process the information submitted and receive product information and other communication, as stated in the privacy policy.
In simple terms, a property investor is anyone who purchases residential or commercial property to earn money from it. This is normally done by letting it out to renters and collecting rental income each month.
Property investors may also make a profit on their property portfolio by selling their properties for a profit. This is caused by the property value rising over time through capital appreciation.
They may also increase the value of their property by renovating properties to fit market demands or repairing older properties.
Anyone can be a property investor, from beginners investing in their first buy-to-let property to experienced investors who own sizeable portfolios. They can work individually or as part of a group when investing.
Most property investors do it part-time or in their spare time as a way of earning passive income, but for large-scale investors, property investment can become a full-time job if the portfolio is large enough.
The vast majority of property investors are already homeowners when they begin investing, meaning they must pay a stamp duty surcharge on any properties they invest in. Stamp duty is a tax charged by the government on any property purchases in England, and differs depending on the price of the property.
Some property investors do not actually own property at all, choosing instead to invest their money into real estate investment trusts (or REITs), which operate like stocks. REITs allow investors to buy shares in real estate portfolios, rather than owning entire properties.
Getting started in property investment can be a daunting prospect, as there are numerous factors that would-be investors need to consider when investing, as well as different ways of becoming a property investor.
The term is not a be-all or end-all, and so long as you own property with the intention of making money, you can call yourself a property investor.
The role of a property investor can differ depending on how hands-on you want to be with your investments, and how you go about investing.
All property investors at the very least need to identify potential investment opportunities to consider, as well as go through the process of actually investing their money. Many choose to do this through a property investment company, which will handle much of the heavy lifting required.
Others choose to find their investment properties themselves, dealing directly with solicitors, estate agents and lettings agents to find the best properties on the market to fit their price range.
Many investors choose to purchase off-plan properties where the property is still in the development or construction stages. These are usually cheaper than fully-built properties but will take longer to begin making a return on the investment due to the time it takes for the development to be completed.
Others will instead choose to invest in fully constructed properties, allowing them to begin earning returns through rental income right away. Although they cost more, many investors prefer to borrow a buy-to-let mortgage to spread out the cost of investing.
Investors who choose to borrow a buy-to-let mortgage will often find that the mortgage is interest-only.
This means the buyer is responsible for paying off the interest the mortgage accrues each month using their rental income. They then pay off the total value of the mortgage at the end of the term, either by selling the property, remortgaging or paying it off completely.
Once they own one or more investment properties, property investors must ensure the property is filled with tenants so they can begin collecting rental income. Many property investors fulfil the duties of a landlord once this is done, solving any issues the property has, such as repairs.
This is not something that property investors are forced to do, however, and many instead choose to use the services of a property management company to handle the day-to-day operations of owning property, freeing their time for other pursuits.
There is no single way to be a property investor, and no two property investors will manage their portfolios in the same way. Much like trading on the stock market, how you go about it is unique to you.
Property investors earn a profit on their investment portfolios through two main methods.
The first is by collecting rental income from the tenants of their properties. This creates a consistent cash flow each month that gives investors money to pay any interest repayments on BTL mortgages or to cover costs that come with owning a rental property.
Rental income is dependent on several factors, such as the maintenance costs of the property, the income tax you must pay on the rental income and how much rent the investor charges. The location of the property, what kind of property it is as well as how new the property is are all factors that affect how much rent you can charge.
The yearly returns investors make on their property investments are known as rental yields and are presented as percentage values. Investors should look for areas and properties with high rental yields when investing, to ensure they earn strong returns on their investments.
The second way that property investors earn money from their returns is through the aforementioned capital appreciation. As a physical asset, property will go up in value over time depending on how house prices rise.
This will mean that if you choose to sell a property at a later date, you will make a profit depending on how much it has increased in value. This is usually a sizeable amount of money, depending on how long you have owned the property and how much house prices have risen.
For example, if we take the North West’s expected 5-year growth of 11.7% as a rough indicator, a property in Liverpool that had a purchase price of £200,000 right now would be worth around £223,400 in 2027, meaning you would make a profit of roughly £23,400.
When you sell a property that has increased in value, you will need to pay a capital gains tax on the increased value of the property, so you will not take the entire capital growth home as profit.
Other factors affect capital appreciation such as the newness of the property, as new builds are more expensive, as well as the condition the property is in if and when you come to sell it. If a property is in a state of disrepair, this will naturally decrease its value.
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There are many different ways of becoming a property investor. By its simplest definition, you simply need to own property which you plan to use for profit rather than to live in, but there are many different ways of going about this.
For beginners, it can often be useful to contact a property investment company. With years of experience in the property market, a team of sales professionals with in-depth knowledge of property investment and post-sales teams only a phone call away, property investment companies are great for guiding you through the process of becoming a property investor.
You will need a sizeable amount of money to become a property investor though, as even though there is a range of cities with affordable house prices, it is still expensive to own property.
The type of property you want to invest in can affect how much money you need when investing. Apartments, the most common kind of rental property, are often cheaper than houses, meaning it is more affordable to purchase.
Residential property is often more affordable than commercial property due to the smaller size of properties and this option is how many buy-to-let investors choose to invest their money.
It is important to remember that property is a long-term investment, so it can take time to begin earning returns on your investment. And if you choose to sell, then you will not see money in your account right away.
If you decide to use an interest-only buy-to-let mortgage to invest in property, then your mortgage payments will be paying off the interest accrued rather than the mortgage itself. With interest rates currently being raised by the Bank of England, this may prove to be more expensive over time.
However, buy to let mortgages are also usually available on a repayment basis.
Lenders are also unlikely to allow first-time buyers to borrow a BTL mortgage, so already owning property is recommended. This will also help you understand issues that your tenants might face when living in your properties.
Navigating the UK property market can be a hassle, as finding properties with the right combination of an affordable market value and high rental yields can be tricky. If you are choosing to do it yourself, contacting a lettings agent is a good way to research the property market.
They can help you identify areas you might consider investing in, as well as properties that could fit your investment goals.
Wherever you are in your investment journey, it is important to do due diligence when investing. No investment is risk-free, and although the property market is one of the most stable in the UK right now, there is no guarantee your investment will be a success.
If you want to take your first step along the road of property investment, try contacting us today!
With over 17 years of experience in property investment, we are experts in what the UK housing market can offer. Our industry-leading sales team can help you find the best investment properties across the UK to help you get the returns you deserve.
We work with both newcomers to property investment as well as experienced investors, and with a proven track record of satisfied investors, you can be assured your money is in safe hands with RWInvest.
John is a property writer here at RWinvest. With a close eye on property market news and updates, John writes detailed and informative articles on a range of topics that are helpful for anybody looking to invest in UK property.
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